The plan to buy mortgage bonds is not a direct solution for homeowners but a form of money printing (QE). This move likely props up banks holding increasingly unattractive mortgages as housing prices are pushed down, effectively bailing out financial institutions rather than individuals.
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Quantitative Easing (QE) forced massive, often uninsured deposits onto bank balance sheets when loan demand was weak. These deposits were highly rate-sensitive. When the Fed began raising rates, this "hot money" quickly fled the system, contributing to the banking volatility seen in March 2023.
The Fed's intervention in funding markets, while not officially labeled Quantitative Easing, directly helps the Treasury finance its debt, effectively monetizing it and providing critical liquidity to markets.
On paper, the Fed is shrinking its balance sheet to cool the economy (quantitative tightening). In reality, rate cuts and other channels are injecting liquidity into the financial system faster than it's being removed. This contradictory policy means that despite official tightening, actual liquidity conditions are already easing, fueling asset prices.
Decades of currency debasement through money printing have made asset ownership essential for wealth preservation. Since a house is the most intuitive asset for the average person, owning one transformed from a component of the American Dream into a compulsory defense against inflation.
The Fed's T-bill purchases are a technical maneuver to manage bank reserves and avoid distortions in the bills market. Unlike Quantitative Easing (QE), the primary goal is not broad economic stimulus, but to ensure the smooth functioning of money markets, a critical distinction for interpreting Fed actions.
The common narrative of the Federal Reserve implementing Quantitative Tightening (QT) is misleading. The US has actually been injecting liquidity through less obvious channels. The real tightening may only be starting now as these methods are exhausted, signaling a significant, under-the-radar policy shift.
Governments with massive debt cannot afford to keep interest rates high, as refinancing becomes prohibitively expensive. This forces central banks to lower rates and print money, even when it fuels asset bubbles. The only exits are an unprecedented productivity boom (like from AI) or a devastating economic collapse.
The Fed's plan to reinvest maturing mortgage-backed securities (MBS) into Treasury bills is a stealth liquidity injection. The US Treasury can amplify this effect by shifting issuance from long-term bonds to short-term bills, which the Fed then absorbs. This is a backdoor way to manage rates without formal QE.
Since WWII, governments have consistently chosen to print money to bail out over-leveraged actors rather than raise taxes or allow failure. This long-term policy has systematically devalued currency and concentrated wealth, creating today's deep economic divide.
By engaging in large-scale asset purchases (QE) for too long, the Federal Reserve inflated asset prices, creating a two-tier economy. This disproportionately benefited existing asset holders while wage earners were left behind, making the Fed a major, albeit unintentional, contributor to wealth inequality.
